Buy Now, Pay Later
If you’ve shopped online recently, you may have noticed new payment options at checkout, including buy-now-pay-later (BNPL) credit, for purchases like clothing, electronics, furniture, and exercise equipment. BNPL is a type of deferred payment option that generally allows you to purchase items with little to no money paid up front, followed by installment payments. Its use has spiked during the COVID-19 pandemic. Although features of BNPL sound similar to traditional layaway, credit cards or other loans, there are distinct differences. It’s essential to understand the benefits and risks that come with BNPL (or any financial product) before making your next purchase.
How BNPL works
Products that are eligible for BNPL range in price from less than $100 to several thousand dollars. When you’re buying one of these products using BNPL, you will select that option at checkout online or in an app. If approved, the purchase is sent to you and the cost is split into a payment schedule - typically four fixed payments made bi-weekly or monthly until the balance is paid in full. Approval takes minutes, with no interest or finance charges.
Unlike credit card companies or other consumer loan lenders, BNPL companies generally don’t conduct a hard credit inquiry when you apply. Instead, most BNPL providers only require the following:
- You’re at least 18 years old
- You have a mobile phone number
- You have a debit or credit card to make payments
- They are able to validate your identity.
BNPL may seem straightforward and convenient; however, you should consider a few things before selecting this option to make a purchase.
Don’t overextend your finances
BNPL can be a tempting payment option for many consumers because it makes it easy to purchase something today and pay for it later. Because you can qualify for BNPL without passing a hard credit inquiry, make sure you have a good sense of your finances and whether the payments will fit within your budget. Just because you qualify for BNPL, or any other credit product, doesn’t mean you should use it. Contact a qualified financial advisor if you need help creating a budget or check out the CFPB’s resources. Military servicemembers can also reach out to their installation’s or a DoD if they need help budgeting or understanding financial products like BNPL.
Understand credit reporting
Your repayment behavior on many types of loans and credit products is reported to consumer reporting companies. This can help you establish credit or build a credit score or hurt your credit profile if you make late payments or use too much of your available credit. Some consumers might assume that BNPL credit helps them build their credit history. This could be especially true of young servicemembers, many of whom begin opening credit accounts soon after entering the military. It’s important to know that most BNPL credit is not reported to the credit bureaus and won’t impact your credit score. If getting or building credit is your goal, use our resources to better understand how to improve your credit record over time.
While most BNPL companies don’t currently report to consumer reporting companies, there are some that do. If you make a late payment, and the BNPL company reports your late payment to a credit reporting company, this can harm your credit history. Be sure to research whether or not a BNPL company reports to credit bureaus before using their service.
BNPL products can carry late fees
While many BNPL companies don’t charge interest, most do charge late fees if you miss a payment. In addition, you could be blocked from future purchases until you make past payments and could even have your debt sent to a debt collector if you fail to repay. Because lenders have different fees and policies, it is important to carefully review the BNPL terms and conditions to understand your obligations. Also, be aware that your bank may charge you an overdraft or NSF fee if you sign up for automatic repayment through your debit card or bank account and don’t have enough funds to cover the payment.
BNPL products don’t have the same protections as other types credit
Like a credit card, you can use BNPL to make a purchase and pay for it later over time. However, BNPL loans currently lack the consumer protections that apply to credit cards. For example, BNPL companies don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam. Returning merchandise bought with BNPL can sometimes be complicated. The BNPL company may hold you responsible for the total cost of a purchase even after you’ve returned the product, so be sure to read and understand the merchant’s specific return policies.
Compare BNPL to other payment options
BNPL offers aren’t the only new payment option you might find when making an online purchase. There are other types of installment loans that let you repay purchases over a longer time, though some of these loans charge interest and may also charge late fees. Most of the other loan options also do a hard credit inquiry when you apply and report your payments to the credit bureaus, which could help or hurt your credit score.
Know your military consumer rights
As with any loan or credit offer, make sure you can afford to make the payments on time and that you understand the terms of the loan before agreeing to it.
Contact your local if you feel any loan or credit offer violates your military consumer rights. Veterans can contact their or for more information on BNPL consumer protections or laws in their state. You can also submit a complaint to us if you’re having a problem with BNPL, or any financial product or service, that you can’t solve on your own. The CFPB is here to help.